Money Smart Medics Part 3: Starting the budget

If you’re anything like me, you probably cringed a little when you read the title. If you’ve never lived on a written budget, it can seem kind of scary. I used to think that budgeting meant that I would lose control of my finances. What I wound up discovering is that budgeting is the only way to take control of your finances. The truth is, we all live on a budget. It’s just a matter of how many categories we chose to setup.

Trust me when I say that setting up a budget is one of the most liberating feelings when it comes to managing money. My version of budgeting used to be swiping my debit card until it stopped working. I used to get anxious every time I paid for something because I was never 100% sure that the transaction was going to be approved. That’s no way to live. Once I took control of my spending, all of that stopped. My stress level became nearly non-existent.

I remember hearing Dave Ramsey say that I will feel like I got a pay raise once I start budgeting. I wasn’t sure what he meant by that until I actually started doing it myself. Within a month of living on a written budget, I quit both of my part-time jobs. I had previously believed that these jobs were absolutely essential to my survival. Budgeting and being intentional with my money actually allowed me to start focusing on balancing my home life with my work schedule.

List Out Your Monthly Bills

Before we can even start writing our first budget, we have to figure out exactly what we are bringing home and how much we are spending. Grab a note pad and add up your average monthly household income WITHOUT overtime. Now add up all of your monthly bills. This doesn’t include food, fuel, etc. We’ll get to that later. I’m talking about anything that requires a monthly payment like your rent / mortgage, cable TV, car payment, etc. Ideally, your income without overtime should be more than your monthly bills. If it’s not, don’t panic. We’ll be OK.

If your bills exceed your income without overtime, then you are living beyond your means and something has to change. We have 2 choices: We can either reduce the money going out or increase the money coming in. I strongly recommend taking a serious look at what’s going out every month and start eliminating non-essential items using the process I described in Part 2 of the #MoneySmartMedics series. Our goal is going to get all of our monthly expenses below our income amount without overtime. I understand that everyone’s situation is unique and you may not be able to accomplish this depending on your financial obligations. However, do your absolute best to get this as low as your possibly can.

Once you list everything out, grab a calendar and mark all of your due dates with the amount of money owed. This will be extremely useful when it comes time to creating your budget.

Figure Out What You’re Spending

Unless you make a habbit of writing down every dollar you spend, this step is going to take some time. Before you begin, try your best to figure out your basic categories of spending. You don’t have to be extremely detailed, but try to separate things like fast food from groceries. Try using the following as a starting guide:

-Fast Food
Household items

Once you have your basic categories laid out, start pulling up your bank statements and add up the numbers. I would recommend doing a 3 month average in all of the categories, but using only the previous month will also suffice. This part is painful and eye opening, but it’s the only way you’re going to get a grasp on what your spending.

Side Note: The first time I did this, I found that my biggest expense was overdraft fees. Don’t be ashamed or discouraged. Knowledge is power. 

Building Our First Budget

Now that we have all the information we need, we can start putting it all together. We are going to start assigning categories to dollars until our “available funds” hits zero. This is going to take practice. Actually, it’s probably going to take a few months to really get it right. That’s OK! Don’t give up.

We need to lay out our categories, just like we did in the previous step. Only now, we are going to add in our monthly bills as well. You can use the following example to help get you started:

Rent / Mortgage
Car Insurance
-Car Payment
-Credit Cards
-Student Loans
-Fast Food
Spending Money
Household Items
Emergency Fund

Now imagine that each of these categories is an envelope and your monthly income is a pile of cash (we’ll use real envelopes in a later step). Now we just have to fill in the envelopes until there’s no more cash on the table. This part is a bit tricky and it’s going to take practice, but trust me when I say that it gets easier with each time you do it.

We have to place priorities when we budget to make sure that our essential needs are met. If you wind up with a short paycheck, you may not be able to fill all of your envelopes, but that shouldn’t mean that you don’t eat. Here are my top 3 priorities that I make sure are met every paycheck:

Life Sustaining Items: Food, Water, Medicine
Shelter: Rent / Mortage, Essential utilities
Transportation: Fuel, Car Payment, Vehicle Insurance, Public Transit Costs

I used to make the mistake of placing debt collectors, cell phone providers and even the trash company above my essential survival needs. Yes, ideally you will pay everything on time. However, if you get into a pinch, your credit score shouldn’t take priority over feeding yourself and your family. Remember, Experian isn’t going to keep your lights on or take your kids to school.

Once your top 3 priorities are met, you can then decide what gets taken care of next. This part shouldn’t be too difficult to figure out.

Making Your Budget Work For Your Pay Cycle

Writing a monthly budget can be tricky when you’re on a bi-weekly pay schedule. It gets even more tricky when you work 24 hour shifts and have “short” and “long” pay periods. This is where your calendar that you created is going to come in handy. Take the time and mark out every pay period with the hours you are going to work. I use Google Calendars to do this automatically, but anything you have will work just fine.

By looking at your calendar, you should be able to determine which bills will be paid with each pay check. When it comes to larger bills like rent, mortgage or your car payment, you have 2 choices: You can either use one paycheck to cover the large expenses, or fill up half of your “envelope” with each check. Either way, it’s going to be easier to budget on a bi-weekly basis. Here’s an example of how you can set up categories to work with your pay cycle:

Pay Period 1
-Pay Period 2
-Pay Period 1
-Pay Period 2
Car Insurance

…you get the point

Start Stuffing Envelopes

I’m a huge fan of the cash envelope system. Just like we discussed when setting up your budget, you can use real envelopes to separate the cash for your spending categories. Once the envelope runs out, you’ve reached your budget.

This isn’t going to be practical for things that are typically paid out of your checking account like utilities, insurance, etc. But for all of your everyday expenses, this will work wonders. Keep your envelopes somewhere safe and only carry with you what you need.

I highly recommend checking out Dave Ramsey’s article explaining how the envelope system works: 

Factoring In Overtime

Hopefully we have made it this far without having to factor in overtime shifts. But like I said, it’s not the end of world either way. I like to put a price tag on my overtime shifts so that I know exactly what I’m going to be bringing in. I accomplish this by doing the math to figure out exactly what my gross income is for a regular shift vs an overtime shift. Using Paycheck City’s online payroll calculator, I figure out exactly what my take home pay would be with no overtime, 12 hours extra, 24 hours extra, etc. I have a chart in my notebook that looks something like this:

No Overtime: $1,400
12 Hours:
24 Hours:
36 Hours: $2,600
48 Hours: $3,000
(These are made up numbers for the example)

Like I said before, knowledge is power. By placing a price on every shift, you can work towards balancing your work and personal lives and take complete control of your finances.

Make It Easy

All of the things I mentioned in this article can be done with nothing more than a pencil and a piece of paper. However, if you’re willing and able to spend a small amount of money, you can purchase a program called YNAB (You Need A Budget) that does the bulk of your budgeting work for you. Actually, YNAB is the only true “virtual envelope system” that I could find. I’ve never been a huge fan of carrying cash so YNAB really allowed me to continue using my debit card while holding myself accountable. If you’re going to use something like this, you need to make sure that you can discipline yourself to stick to your budget and keep YNAB up-to-date. If you think using your debit card is going to cause problems, stick to cash and real envelopes.

There are some free alternatives as well like, however nothing I have found actually holds you accountable like YNAB does. While many people entering the the budget world seek full automation, YNAB forces you to manually enter all of your transactions. This is a good thing because learning how to budget is about developing good habits. Having a program “nag” at you in your e-mail when you have reached your budget isn’t going to accomplish that. I’ll be posting video tutorials on how to use YNAB in the coming weeks.

Fortunately, I was able to work out a deal with the folks at YNAB to give you a $6.00 off discount if you purchase it through the link on this article. Yes, I will receive a small commission on your purchase as well (just trying to be honest!). You can download their program and use a 34-day free trial if you just want to check it out.


Click here to download YNAB and receive your $6.00 off discount.


If there is one thing to take away from this week’s article, it’s that being intentional with your money is the only way to gain control of your finances. Cut the credit cards and start paying with cash or debit. If you don’t have the money on hand, you can’t afford it. Breaking the credit card cycle can be tough and trust me, we’ll cover that in detail in a later article.

Don’t be afraid to budget. It’s the only way to take complete control of your spending, and taking control is the only way to achieve financial peace.


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